UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission File Number 0-31729
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
(Debtor-in-Possession)
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2498715
--------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
625 W. Ridge Pike, Suite C-106, Conshohocken, PA 19428
----------------------------------------------------------
(Address of principal executive offices)
Telephone: (610) 825-6224
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
As of November 12, 2002, there were 38,582,898 shares outstanding of the
Registrant's $.001 par value common stock.
1
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
(Debtor-in-Possession)
INDEX TO FORM 10-Q
PAGE(S)
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at
September 30, 2002 (unaudited) and
June 30, 2002 (audited) 3
Consolidated Statements of Operations
for the three months ended September 30,
2002 and 2001 (unaudited) 4
Consolidated Statement of Stockholders'
Equity (Deficit) for the three months ended
September 30, 2002 (unaudited) 5
Consolidated Statements of Cash Flows
for the three months ended September 30,
2002 and 2001 (unaudited) 6-7
Notes to Consolidated Financial
Statements (unaudited) 8-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 18-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22-23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
PART I. - FINANCIAL STATEMENTS.
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars and Shares in Thousands)
Sept. 30, June 30,
2002 2002
----------- ---------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 1 $ 5
Inventory 20 20
Prepaid expenses and other current assets 4 -
--------- ---------
25 25
PROPERTY AND EQUIPMENT, NET 369 418
INTANGIBLE ASSETS, NET 59 75
OTHER NON-CURRENT ASSETS 8 8
--------- ---------
TOTAL ASSETS $ 461 $ 526
========= =========
CURRENT LIABILITIES
Accounts payable-trade $ 42 $ 23
Post-petition financing 243 156
Liabilities subject to compromise 5,218 5,557
--------- ---------
5,503 5,736
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
$.001 par value; authorized 300,000 shares;
issued and outstanding, 38,583 shares at
September 30, 2002 and 38,530 shares at
June 30, 2002 38 38
WARRANTS OUTSTANDING 3,755 5,047
ADDITIONAL PAID-IN-CAPITAL 273,161 271,869
ACCUMULATED DEFICIT (281,996) (282,164)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT ( 5,042) ( 5,210)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 461 $ 526
========= =========
See accompanying notes
3
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars and Shares in Thousands, Except Per Share Amounts)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2002 2001
--------- ---------
REVENUE $ - $ -
COST OF REVENUE - -
-------- --------
GROSS PROFIT - -
Depreciation and amortization expenses 65 8
General and administrative expenses 106 2,283
Loss from unconsolidated subsidiary - 427
-------- --------
LOSS FROM OPERATIONS ( 171) ( 2,718)
-------- --------
OTHER EXPENSE
Interest expense ( 1) ( 20)
-------- --------
NET LOSS FROM CONTINUING OPERATIONS ( 172) ( 2,738)
DISCONTINUED OPERATIONS
Loss on disposal - ( 100)
-------- --------
NET LOSS BEFORE EXTRAORDINARY GAIN ( 172) ( 2,838)
EXTRAORDINARY GAIN ON DISCHARGE OF
INDEBTEDNESS 340 -
-------- --------
NET INCOME (LOSS) $ 168 $( 2,838)
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 38,538 36,955
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE
Net loss from continuing operations $( 0.01) $( 0.08)
Discontinued operations:
Loss on disposal - -
Net loss before extraordinary gain ( 0.01) ( 0.08)
Extraordinary gain on discharge of
Indebtedness 0.01 -
-------- --------
Net income (loss) $ 0.00 $( 0.08)
======== ========
See accompanying notes
4
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDED SEPTEMBER 30, 2002
(Dollars and Shares in Thousands)
COMMON STOCK COMMON
--------------- STOCK
NUMBER WARRANTS ADD'L.
OF OUTSTAN- PAID-IN ACCUMULATED
SHARES AMOUNT DING,NET CAPITAL DEFICIT
------ ------ --------- --------- -----------
BALANCES, JUNE 30, 2002 38,530 $ 38 $ 5,047 $ 271,869 $( 282,164)
Three months ended
September 30, 2002
(unaudited):
Exercise of stock
options 53 - - - -
Common stock warrants
expired - - ( 1,292) 1,292 -
Net income - - - - 168
------ ---- -------- --------- ----------
BALANCES, SEPTEMBER 30,
2002 (unaudited) 38,583 $ 38 $ 3,755 $ 273,161 $( 281,996)
====== ==== ======== ========= ==========
See accompanying notes
5
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 168 $( 2,838)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Extraordinary gain on discharge of
indebtedness ( 340) -
Loss from unconsolidated subsidiary - 427
Depreciation and amortization 65 8
Issuance of common stock and common
stock warrants for expenses - 170
Other 1 ( 198)
Change in current assets and liabilities
which increase (decrease) cash:
Prepaid expenses and other current assets ( 4) 67
Accounts payable - trade 19 66
Accrued expenses and other current
liabilities - 1,903
-------- --------
Net cash used in operating activities ( 91) ( 395)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to unconsolidated subsidiary - ( 132)
Proceeds from sale of fixed assets - 19
-------- --------
Net cash used in investing activities - ( 113)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock for cash - 150
Commission on sale of common stock - ( 15)
Short-term borrowings 87 250
-------- --------
Net cash received from financing activities 87 385
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS ( 4) ( 123)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 5 124
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 1 $ 1
======== ========
6
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2002 2001
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period:
Interest $ - $ -
Income taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
None
See accompanying notes
7
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 1 - BASIS OF INTERIM PRESENTATION
The accompanying interim period financial statements of Clariti
Telecommunications International, Ltd. ("Clariti" or the "Company") are
unaudited, pursuant to certain rules and regulations of the Securities and
Exchange Commission, and include, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair statement
of the results for the periods indicated, which, however, are not necessarily
indicative of results that may be expected for the full year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. The financial statements should be read in conjunction with the
financial statements and the notes thereto included in Clariti's June 30, 2002
Form 10-K and other information included in Clariti's Forms 8-K and amendments
thereto as filed with the Securities and Exchange Commission.
NOTE 2 - DESCRIPTION OF THE BUSINESS
Clariti Telecommunications International, Ltd. is a non-operating U.S.
parent company with subsidiaries in the U.S. and Italy. In this Form 10-Q, the
terms "Clariti" and "the Company" are used interchangeably in reference to the
parent company and/or any of its subsidiaries. Clariti holds proprietary
technology for digital transmission of data utilizing radio frequencies
transmitted by FM radio stations.
On April 18, 2002, Clariti Telecommunications International, Ltd. filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Pennsylvania (case no. 02-15817(DWS)). The Company has managed its
properties and operated its business as "debtor-in-possession" under
jurisdiction of the Bankruptcy Court and in accordance with applicable
provisions of the Bankruptcy Code. The Company's Plan of Reorganization has
been approved by the Bankruptcy Court, with an effective date of November 12,
2002.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year End
---------------
The Company's fiscal year ends on June 30. In these financial statements, the
three-month periods ended September 30, 2002 and 2001 are referred to as Fiscal
1Q03 and Fiscal 1Q02, respectively.
Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
all wholly-owned subsidiaries where management control is not deemed to be
temporary. All significant intercompany transactions have been eliminated in
consolidation.
8
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
------------
There is no income tax expense (benefit) for income (losses) for the three
months ended September 30, 2002 and 2001 due to the following:
Current tax expense - availability of net operating loss carryforwards
Current tax benefit - the operating losses cannot be carried back to
earlier years.
Deferred tax benefit - the deferred tax assets were offset by a valuation
allowance required by FASB Statement 109,
"Accounting for Income Taxes." The valuation
allowance is necessary because, according to
criteria established by FASB Statement 109, it is
more likely than not that the deferred tax asset
will not be realized through future taxable income.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist primarily of cash and equivalents,
accounts payable, liabilities subject to compromise and post-petition
financing. These balances, as presented in the balance sheet as of September
30, 2002 and June 30, 2002 approximate their fair value because of their short
maturities.
Net Income (Loss) Per Common Share
----------------------------------
Net income (loss) per common share is based upon the weighted average number of
common shares outstanding during the period. The treasury stock method is used
to calculate dilutive shares. Such method reduces the number of dilutive
shares by the number of shares purchasable from the proceeds of the options and
warrants assumed to be exercised. Basic and diluted weighted average shares
outstanding for Fiscal 1Q03 and Fiscal 1Q02 were the same because the effect of
using the treasury stock method would be antidilutive.
Recent Accounting Pronouncements
--------------------------------
In August 2001, FASB Statement 142, "Goodwill and Other Intangible Assets" was
issued, which is effective for fiscal years beginning after December 15, 2001.
Statement 142 addresses how intangible assets that are acquired individually or
with a group of assets should be accounted for upon their acquisition and also
addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements. Also,
for previously recognized non-goodwill intangible assets, the useful lives must
be reassessed with remaining amortization periods adjusted accordingly, and
reflected as a change in accounting principle. The adoption of this standard
in Fiscal 1Q03 did not result in any significant impact on results of
operations or financial position of the Company.
9
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement
144"), effective in fiscal years beginning after December 15, 2001, with early
adoption permitted, and in general are to be applied prospectively. Statement
144 establishes a single accounting model for the impairment or disposal of
long-lived assets, including discontinued operations. Statement 144 superseded
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The adoption of this standard in Fiscal 1Q03 did not result in
any significant impact on its financial position or results of operations.
The following recently issued accounting pronouncements are currently not
applicable to the Company.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("Statement 141"), effective for all business
combinations initiated after June 30, 2001. Statement 141 requires all
business combinations to be accounted for under the purchase method. Statement
141 supersedes APB Opinion No. 16, "Business Combinations," and Statement No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises."
In August 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Obligations Associated with the Retirement of Long-Lived
Assets" (Statement 143), effective in fiscal years beginning after June 15,
2002, with early adoption permitted. Statement 143 establishes accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. It also provides accounting guidance
for legal obligations associated with the retirement of tangible long-lived
assets.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections (Statement 145), effective in fiscal years
beginning after May 15, 2002.
10
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 4 - MANAGEMENT'S PLANS FOR REORGANIZATION
On April 18, 2002, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Pennsylvania (case no. 02-
15817(DWS)). The Company managed its properties and operated its business as
"debtor-in-possession" under jurisdiction of the Bankruptcy Court and in
accordance with applicable provisions of the Bankruptcy Code. The Company's
Plan of Reorganization has been approved and an effective date of November 12,
2002 has been issued. The Company plans to continue to develop and utilize its
wireless technology in several communications devices. However, these matters
raise substantial doubt about the Company's ability to continue as a going
concern.
On June 25, 2002, the Company filed its Chapter 11 Reorganization Plan with the
Bankruptcy Court detailing the plans for settling claims of creditors and
restructuring the interests of its equity holders, which has since been
approved by the Bankruptcy Court. The following is a brief summary of the
Reorganization Plan:
1. The Company owed Priority Unsecured Claims as of the filing date of
approximately $85,000. Included in these claims are four former employees
who are owed wages, which accrued during the statutory priority period.
Each of these four individuals has a priority claim in the amount of $4,650.
Additionally, the Company owed certain federal, state and local taxes, which
totaled just in excess of $67,000. The Reorganization Plan calls for all
Priority Unsecured Claims to be paid at 100 cents on the dollar.
2. The Company owed Secured Creditors as of the filing date approximately
$1,345,000. Specifically, the Company owed $858,000 to Ansteed (its largest
shareholder), $250,000 to Pasubio Spa, an Italian joint venture partner, and
$237,000 to Eizen Fineburg & McCarthy, former corporate counsel. The
Reorganization Plan calls for all three secured creditors to receive a
convertible, non-interest bearing, unsecured promissory note for the face
amount owed to them. The principal amount of the note payable to Ansteed
and/or its affiliate will also include any amounts advanced to the Company
during the bankruptcy case and thereafter until December 31, 2002. The notes
payable will mature on December 31, 2005 if not converted earlier. The
notes are convertible at the Company's discretion at the rate of $2.00 per
share (after the planned 100:1 reverse split) for Ansteed, its affiliate and
Pasubio, and at a rate of $10.00 per share (after the planned 100:1 reverse
split) for Eizen Fineburg & McCarthy.
3. The Company owed General Unsecured Creditors approximately $3,782,000 as of
the filing date. An affiliate of Ansteed has agreed to fund the
Reorganization Plan for $300,000 to be used to pay the Administrative costs
totaling approximately $76,000, Priority Unsecured Claims totaling
approximately $85,000 and General Unsecured Claims, in that order. It is
thus estimated that General Unsecured Claims will receive a total of
approximately $139,000. This will result in a gain on discharge of
indebtedness of approximately $3,600,000.
11
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 4 - MANAGEMENT'S PLANS FOR REORGANIZATION (continued)
4. Existing equity holders, including common stock option and warrant holders,
will be subject to a 100:1 reverse split.
The Company's exclusive source of post-petition operating funds have been
advanced by Ansteed and/or its affiliate. The Company reached an agreement
with them to continue to advance funds to permit the business to work further
toward the final development of the ClariCAST(TM) FM wireless technology.
Since the inception of the bankruptcy, Ansteed and/or its affiliate have
advanced $316,000 through October 31, 2002.
The Company believes this Reorganization Plan provides the most reasonable and
realistic approach to satisfaction of the allowed claims in the most efficient
manner. The Reorganization Plan provides for the repayment of the outstanding
Administrative costs and Priority Unsecured Claims in cash upon the
Reorganization Plan effective date and further provides for a small cash
payment to unsecured creditors.
The Company has chosen to focus its future efforts on development and
commercialization of its patented ClariCAST(TM) FM wireless technology.
Because the Company's technology is still under development, the Company
expects no revenues or operating cash flows in the near term. Future cash
expenditure requirements have been significantly reduced through major
reductions in corporate overhead expenses.
The Company is actively pursuing opportunities to secure additional financing
which, if obtained, is expected to be sufficient to develop and market its
wireless technology. There can be no assurances that such funding will be
generated or available, or if available, on terms acceptable to the Company.
Failure to secure additional financing will have a material adverse impact on
the Company.
Clariti Wireless Messaging, Inc. and RadioNet International, Inc., both wholly
owned subsidiaries of Clariti Telecommunications International, Ltd., each
filed a voluntary petition for bankruptcy under Chapter 7 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of
Pennsylvania on October 24, 2001 and May 3, 2002, respectively. Both companies'
operations have ceased. Neither company held significant assets. The
Bankruptcy Court closed the case on Clariti Wireless Messaging, Inc. in Fiscal
2002 and the Company recorded an extraordinary gain on discharge of
indebtedness of approximately $1,568,000. The Bankruptcy Court also closed the
case on RadioNet International, Inc. on July 12, 2002 and the Company recorded
an extraordinary gain on discharge of indebtedness of approximately $340,000 in
Fiscal 1Q03.
The consolidated financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts or the amounts of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
12
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 5 - UNCONSOLIDATED SUBSIDIARY
As further described in Note 4, on October 24, 2001, Clariti Wireless filed a
voluntary petition for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code.
As a result, the Company's financial statements for Fiscal 1Q02 reflect Clariti
Wireless' results of operations using the equity method of accounting. The
following table presents summary financial information for Clariti Wireless
(dollars in thousands):
Fiscal 1Q02:
Net sales $ -
Expenses $ 427
NOTE 6 - LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise of the Company and its consolidated
subsidiaries as of September 30, 2002 consist of the following (in thousands):
Secured Claims $ 1,344
Priority Claims 85
General Unsecured Claims 3,789
-------
$ 5,218
=======
The liabilities subject to comprise are comprised of the following:
Borrowings from related party $ 857
(Note 7)
Convertible borrowings (Note 8) 318
Accounts payable and other
accrued expenses 4,043
-------
$ 5,218
=======
13
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 7 - SHORT-TERM BORROWINGS FROM RELATED PARTY
On May 3, 2001, the Company borrowed $750,000 from Ansteed Investment, Ltd.
("Ansteed"), a greater than 5% shareholder, for a period of 61 days. The note
carries interest at the rate of 10% per annum and is secured by substantially
all of the Company's assets. The amount shown on the Company's consolidated
balance sheet as of September 30, 2002 includes $73,000 of accrued interest.
In connection with this loan, the Company granted to Ansteed warrants to
purchase 400,000 shares of the Company's common stock at an exercise price of
$0.95 per share. Such warrants expire on May 3, 2003.
On November 30, 2001, the Company and Ansteed Investment, Ltd. executed a
Forbearance and Amendment Agreement whereby extending the terms of the
repayment of the $750,000 loan amount to March 31, 2002. In addition, the
Forbearance and Amendment Agreement allowed for Ansteed to advance an
additional $20,500 to the Company for legal fees associated with the agreement.
The additional $20,500 also carries interest at the rate of 10% per annum and
was due by March 31, 2002. On March 3, 2002, the Company borrowed an
additional $13,519 from Ansteed Investment, Ltd. for certain expenses, carrying
the same terms as the original note. The Company is in default of this loan.
Ansteed and/or its affiliate have agreed to fund the Company's working capital
requirements through Chapter 11 and until December 31, 2002. The amount funded
as of October 31, 2002 was $316,000. Some of this funding is expected to be
included in the convertible, non-interest bearing, unsecured promissory note(s)
to be issued to Ansteed and/or its affiliate pursuant to the Reorganization
Plan.
NOTE 8 - CONVERTIBLE SHORT-TERM BORROWINGS
On June 28, 2001, the Company borrowed $62,500 from a third party. The
unsecured note was due on November 1, 2001 and carries interest at the rate of
8% per annum. The note is convertible into shares of the Company's common stock
at the option of the lender at a conversion price of $0.075 per share. The
amount shown on the Company's consolidated balance sheet as of September 30,
2002 includes $6,000 of accrued interest. In connection with this loan, the
Company granted to the third party warrants to purchase a total of 125,000
shares of the Company's common stock, 62,500 of which are exercisable at $0.25
per share and 62,500 of which are exercisable at $0.50 per share. These
warrants expired on June 28, 2002. The Company was unable to repay the loan by
the November 1, 2001 due date, and is therefore in default of the loan
agreement.
On July 2, 2001, the Company entered into a Funding Agreement with a third
party pursuant to which Clariti borrowed $250,000 (the "Outstanding Balance").
The Outstanding Balance is secured by a second position security interest in
substantially the same assets as those securing the $750,000 loan from Ansteed
(see Note 7). No interest is due on the Outstanding Balance. The Outstanding
Balance was to be repaid on or before July 2, 2002. Therefore the Company is
in default of the funding agreement. The third party may convert the
14
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 8 - CONVERTIBLE SHORT-TERM BORROWINGS (continued)
Outstanding Balance into shares of the Company's common stock at a conversion
price of $0.50 per share. In connection with this Funding Agreement, the
Company granted to the third party warrants to purchase a total of 1,000,000
shares of the Company's common stock exercisable at $0.50 per share. These
warrants expired on July 2, 2002.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
France Telecom SA ("France Telecom") initiated a complaint against the Company
on May 12, 2000 before the Tribunal de Commerce de Paris (Paris Commercial
Court) in Paris, France. France Telecom's claim relates to a debt it claims it
is owed by GlobalFirst Communications SA, a former French subsidiary of the
Company, for long-distance telephone services. France Telecom sought payment
from Clariti of 20,000,000 French Francs (approximately $2,700,000). France
Telecom further claimed unspecified damages corresponding to the loss of
revenue resulting from the ceasing of commercial relations with GlobalFirst
Communications SA. The Company vigorously defended the claims asserted by
France Telecom. Clariti believed that it did not verbally or in writing make a
promise to pay any obligations of GlobalFirst Communications SA, and that it
caused no damages to France Telecom because commercial relations with
GlobalFirst Communications SA had ceased before Clariti held any negotiations
with France Telecom. On April 10, 2002, The Tribunal de Commerce de Paris
issued a decision in favor of the Company, denying France Telecom any damages.
On or about September 28, 2000, Michael P. McAndrews filed a Demand for
Arbitration with the American Arbitration Association against the Company and
Clariti Wireless concerning obligations arising under Mr. McAndrews' Employment
Agreement. Mr. McAndrews has alleged that the Company had guaranteed and
assumed the obligation due Mr. McAndrews pursuant to an Assignment and Guaranty
Agreement. Mr. McAndrews claimed that as a result of a material change in his
duties, he resigned from employment for "good reason" (as defined in the
Employment Agreement), therefore entitling him to a severance package in an
amount in excess of $294,000. Additionally, Mr. McAndrews requested reasonable
attorney fees and other costs and fees, together with interest thereon.
Clariti Wireless and the Company disputed Mr. McAndrews' allegations, asserting
that Mr. McAndrews was not entitled to any payments and/or damages under the
Employment Agreement. The Arbitrators held a hearing on June 14 and 15, 2001
regarding the matter. On October 18, 2001, the Arbitrators ruled that the
Company and Clariti Wireless are jointly and severally liable to pay Mr.
McAndrews $290,500 plus reasonable attorney's fees and costs. On December 17,
2001, the Arbitrators awarded Mr. McAndrews $83,219 for attorney's fees and
costs, bringing the total award for Mr. McAndrews to $409,000, including
accrued interest. This amount is included as a general unsecured claim in the
Company's Chapter 11 bankruptcy proceedings.
On June 12, 2001, M&T Bank filed an action against the Company in the Court of
Common Pleas of Montgomery County, Pennsylvania. M&T Bank seeks to hold Clariti
responsible under the terms of a guaranty agreement pursuant to which Clariti
15
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)
allegedly guaranteed certain obligations of its former subsidiary, Clariti
Telecom, Inc. M&T Bank seeks damages in the amount of $368,000.
On October 17, 2001, Nine Penn Center Associates filed a complaint against the
Company in the Court of Common Pleas of Montgomery County, Pennsylvania. Nine
Penn Center Associates is the landlord and owner of real property known as the
Mellon Bank Center, 1735 Market Street, Philadelphia, PA 19103, a former
address of the Company's headquarters. Nine Penn Center Associates is seeking
damages associated with the remainder of a lease agreement. On April 2, 2002,
the Court entered a judgment by default in favor of Nine Penn Center Associates
in the amount of $1,203,493. This amount has been accrued and recorded in
general and administrative expenses. However, this amount is based on the
acceleration of the lease through 2006 and therefore is being disputed by the
Company through the Bankruptcy Court.
The Company is, from time to time, during the normal course of its business
operations, subject to various other litigation claims and legal disputes. The
Company expects none to have a material adverse impact on its operations;
however, no assurance can be given that an adverse determination of any claim
or dispute would not have an adverse impact on its operations during any given
period.
NOTE 10 - COMMON STOCK
During Fiscal 1Q03 certain employees exercised 53,333 shares of its common
stock at an exercise price of $.001 per share. The amount has been recorded as
Common Stock and Additional Paid in Capital.
NOTE 11 - STOCK OPTIONS
There were no new stock options issued during Fiscal 1Q03.
NOTE 12 - WARRANTS
From time to time, the Company may issue warrants to purchase its common stock
to parties other than employees and directors. Warrants may be issued as a
unit with shares of common stock, in connection with borrowings, as an
incentive to help the Company achieve its goals, or in consideration for cash
or services rendered to the Company, or a combination of the above. Cost
associated with warrants issued to other than employees is valued based on the
fair value of the warrants as estimated using the Black-Scholes model with the
following assumptions: no dividend yield, expected volatility of 80%, and a
risk-free interest rate of 5.0%.
16
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 12 - WARRANTS (continued)
During Fiscal 1Q03 the Company did not issue any warrants. Also during Fiscal
1Q03, 1,473,000 warrants with exercise prices between $0.07 and $10.50 per
share expired without being exercised. The book value of such expired warrants
(approximately $1,292,000) was reclassified from warrants outstanding to
additional paid-in capital.
NOTE 13 - SEGMENT INFORMATION
The Company has determined that segment information is not required to be
presented because the Company's former segment known as Telephony/Internet
Services was discontinued during Fiscal 2001.
17
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain information included in this quarterly report may be deemed to include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, that involve risk and uncertainty, such as our ability to
successfully do any or all of the following:
- Emerge from Chapter 11 bankruptcy proceedings pursuant to the terms of
our reorganization plan dated June 25, 2002,
- Obtain financing for operations and expansion after we emerge from
bankruptcy proceedings,
- Manage the transition from our former board of directors and management
team to the new board of directors and management team,
- Develop commercially viable applications for the ClariCAST(TM)
technology,
- Obtain access to engineering resources required to complete development
and commercial implementation of potential applications for the
ClariCAST(TM) technology,
- Lease SCA channels from FM radio stations,
- Select and develop partnerships to help market, sell and distribute the
wireless products and services we are attempting to develop,
- Develop a marketing strategy for the wireless products and services we
are attempting to develop
- Develop manufacturing and distribution channels for the wireless
products and services we are attempting to develop
- Manage the progress and costs of additional research and development of
the ClariCAST(TM) technology
- Manage the risks, restrictions and barriers of conducting business
internationally
- Reduce future operating losses and negative cash flow
- Compete effectively in the markets we choose to enter
In addition, certain statements may involve risk and uncertainty if they
are preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar
expressions, and other statements contained herein regarding matters that are
not historical facts. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our expectations
will be achieved. The important factors that could cause actual results to
differ materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation, risks related to our
Chapter 11 bankruptcy proceedings, ability to obtain funding, ability to
reverse operating losses, competition and regulatory developments, as well as
the other risks identified below under "Risk Factors" and those referenced from
time to time in our filings with the Securities and Exchange Commission. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements. We do not undertake any obligation to
release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
18
General Operations
------------------
The current focus of our business is the development and commercialization
of ClariCAST(TM), our proprietary wireless technology that will support data
and information services to a high-speed digital wireless device.
Recent Events
-------------
On April 18, 2002, Clariti Telecommunications International, Ltd. filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Pennsylvania (case no. 02-15817(DWS)). At that time the Company reported
tangible assets with a book value of approximately $700,000 and liabilities of
approximately $5,212,000. The Company continued to manage its properties and
operate the business as "debtor-in-possession" under jurisdiction of the
Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy
Code. On October 15, 2002, the Company's Plan of Reorganization was approved
by the Bankruptcy Court with an effective date of November 12, 2002.
The Company's approved Reorganization Plan with the Bankruptcy Court details
the plans for settling claims of creditors and restructuring the interests of
its equity holders. Following is a brief summary of the Reorganization Plan:
1. The Company owed Priority Unsecured Claims as of the filing date of
approximately $85,000. Included in these claims are four former employees
who are owed wages, which accrued during the statutory priority period.
Each of these four individuals has a priority claim in the amount of $4,650.
Additionally, the Company owed certain federal, state and local taxes, which
totaled just in excess of $67,000. The Reorganization Plan calls for all
Priority Unsecured Claims to be paid at 100 cents on the dollar.
2. The Company owed Secured Creditors as of the filing date approximately
$1,345,000. Specifically, the Company owed $858,000 to Ansteed (its largest
shareholder), $250,000 to Pasubio Spa, an Italian joint venture partner, and
$237,000 to Eizen Fineburg & McCarthy, former corporate counsel. The
Reorganization Plan calls for all three secured creditors to receive a
convertible, non-interest bearing, unsecured promissory note for the face
amount owed to them. The principal amount of the note payable to Ansteed
and/or its affiliate could also include any amounts advanced to the Company
during the bankruptcy case and thereafter until December 31, 2002. The notes
payable will mature on December 31, 2005 if not converted earlier. The
notes are convertible at the Company's discretion at the rate of $2.00 per
share (after the planned 100:1 reverse split) for Ansteed, its affiliate and
Pasubio, and at a rate of $10.00 per share (after the planned 100:1 reverse
split) for Eizen Fineburg & McCarthy.
3. The Company owed General Unsecured Creditors approximately $3,782,000 as of
the filing date. An affiliate of Ansteed has agreed to fund the
Reorganization Plan for $300,000 to be used to pay the Administrative costs
totaling approximately $76,000, Priority Unsecured Claims totaling
approximately $85,000 and General Unsecured Claims, in that order. It is
thus estimated that General Unsecured Claims will receive a total of
approximately $139,000. This will result in a gain on discharge of
indebtedness of approximately $3,600,000.
4. Existing equity holders, including common stock option and warrant holders,
will be subject to a 100:1 reverse split.
19
The Company's exclusive source of post-petition operating funds have been
advanced by Ansteed and/or its affiliate. The Company reached an agreement
with them to continue to advance funds to permit the business to work further
toward the final development of the ClariCAST(TM) technology. Since the
inception of the bankruptcy, Ansteed and/or its affiliate have advanced
$316,000 through October 31, 2002.
The Company believes this Reorganization Plan provides the most reasonable and
realistic approach to satisfaction of the allowed claims in the most efficient
manner. The Reorganization Plan provides for the repayment of the outstanding
Administrative costs and Priority Unsecured Claims in cash upon the
Reorganization Plan effective date and further provides for a small cash
payment to unsecured creditors.
Results of Operations
Three Months Ended September 30, 2002 ("Fiscal 1Q03")
vs. Three Months Ended September 30, 2001 ("Fiscal 1Q02")
--------------------------------------------------------
For Fiscal 1Q03, the Company incurred net income of $168,000, or $0.00 per
share, on no revenue as compared to a net loss of $2,838,000, or $0.08 per
share, on no revenue in Fiscal 1Q02. Excluding extraordinary gain on discharge
of indebtedness, the Company incurred a net loss of $172,000, or $0.01 per
share, on no revenue as compared to a net loss of $2,838,000, or $0.08 per
share, on no revenue in Fiscal 1Q02.
For Fiscal 1Q03, net loss from continuing operations was $172,000 as compared
to $2,738,000 in Fiscal 1Q02. The $2,566,000 reduction in loss from continuing
operations was primarily due to the elimination of the expenses associated with
subsidiaries that ceased operations during Fiscal 1Q02. In addition, the
Company operated with limited expenses in Fiscal 1Q03 due the Chapter 11
proceeding mentioned above.
General and administrative expenses decreased $2,177,000, from $2,283,000 to
$106,000 in Fiscal 1Q03. Fiscal 1Q02 amounts include accruals of $1,256,000
for certain leases in default and legal proceedings. Once again, the severe
cash shortage forced the Company to significantly reduce its costs.
During the period from December 1998 to May 2001, the Company was also a
significant provider of wire-line telecommunication services through its
interest in several businesses with operations in the United States, United
Kingdom, Europe and Australia. During the year ended June 30, 2001, the
Company divested these business operations, which formed its former business
segment, Telephony/Internet Services. During Fiscal 1Q02 the Company recognized
an additional $100,000 loss on the disposal of one of those businesses.
Liquidity and Capital Resources
-------------------------------
At September 30, 2002, the Company had a working capital deficit of $5,478,000
(including a cash balance of $1,000) as compared to a working capital deficit
of $5,711,000 (including a cash balance of $5,000) at June 30, 2002. The
working capital increase of $233,000 is primarily due to a $340,000 decrease in
liabilities subject to compromise offset by an increase in post-petition
financing of $87,000 in Fiscal 1Q03. The decrease in liabilities subject to
compromise is due to the extraordinary gain on discharge of indebtedness of
$340,000 associated with the closing of the Chapter 7 proceedings for RadioNet
International.
20
The Company has operated as debtor-in-possession under jurisdiction of the
Bankruptcy Court. The Reorganization Plan submitted to the Bankruptcy Court
has been approved and the Company expects that all of its unsecured liabilities
are going to be extinguished as it emerges from Chapter 11 proceedings.
Ansteed and/or its affiliate have agreed to fund the Company's working capital
requirements through Chapter 11 and until December 31, 2002. Such working
capital requirements are forecasted to be approximately $50,000 per month,
principally to cover the compensation and related costs of its two engineering
employees as well as limited general and administrative expenses. This funding
is expected to be included in the convertible, non-interest bearing, unsecured
promissory note(s) to be issued to Ansteed and/or its affiliate pursuant to the
Reorganization Plan. The Company has chosen to focus its future efforts on
development and commercialization of its ClariCAST(TM) technology. Because the
technology is still under development, the Company expects no revenues or
positive operating cash flow in the near term.
The Company has no firm commitments for funding after December 31, 2002. The
Company has historically relied principally on equity financing to meet its
cash requirements. As the Company emerges from Chapter 11, it expects to find
the process of raising equity capital extremely difficult. These matters raise
substantial doubt about the ability to continue as a going concern. Significant
additional funding will be required beyond Fiscal 2003 to meet expected
negative operating cash flows. There can be no assurances that such funding
will be generated or available, or if available, on terms acceptable to the
Company.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 18, 2002, Clariti Telecommunications International, Ltd. filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Pennsylvania (case number 02-15817(DWS)). The Company managed its
properties and operated as "debtor-in-possession" under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code. The Company filed a Plan of Reorganization dated June 25,
2002 and an Amended Disclosure Statement dated August 7, 2002. Clariti's Plan
provided for the optimum payments to creditors within the shortest practical
and realistic period of time giving consideration to the creditors and the
Company's limited resources. On October 15, 2002, the Company's Plan of
Reorganization was approved by the Bankruptcy Court with an effective date of
November 12, 2002.
Clariti negotiated a Funding Agreement with Ansteed Investment, Ltd. (the
Company's primary secured creditor and its largest shareholder) and an
affiliated company, Cash Card Communications, Ltd. ("C4"), pursuant to which
Ansteed and C4 have agreed to provide limited funding to the Company during and
after Chapter 11 proceedings as well as the funding required to execute the
Plan of Reorganization. In consideration, the Company allowed such advances to
become secured claims of Ansteed and C4. Such advances were limited to minimal
expenses necessary to keep the Company operating.
France Telecom SA ("France Telecom") initiated a complaint against the Company
on May 12, 2000 before the Tribunal de Commerce de Paris (Paris Commercial
Court) in Paris, France. France Telecom's claim relates to a debt it claims it
is owed by GlobalFirst Communications SA, a former French subsidiary of the
Company, for long-distance telephone services. France Telecom sought payment
from Clariti of 20,000,000 French Francs (approximately $2,700,000). France
Telecom further claimed unspecified damages corresponding to the loss of
revenue resulting from the ceasing of commercial relations with GlobalFirst
Communications SA. The Company vigorously defended the claims asserted by
France Telecom. Clariti believed that it did not verbally or in writing make a
promise to pay any obligations of GlobalFirst Communications SA, and that it
caused no damages to France Telecom because commercial relations with
GlobalFirst Communications SA had ceased before Clariti held any negotiations
with France Telecom. On April 10, 2002, The Tribunal de Commerce de Paris
issued a decision in favor of the Company, denying France Telecom any damages.
On or about September 28, 2000, Michael P. McAndrews filed a Demand for
Arbitration with the American Arbitration Association against the Company and
Clariti Wireless concerning obligations arising under Mr. McAndrews' Employment
Agreement. Mr. McAndrews has alleged that the Company had guaranteed and
assumed the obligation due Mr. McAndrews pursuant to an Assignment and Guaranty
Agreement. Mr. McAndrews claimed that as a result of a material change in his
duties, he resigned from employment for "good reason" (as defined in the
Employment Agreement), therefore entitling him to a severance package in an
amount in excess of $294,000. Additionally, Mr. McAndrews requested reasonable
attorney fees and other costs and fees, together with interest thereon.
Clariti Wireless and the Company disputed Mr. McAndrews' allegations, asserting
that Mr. McAndrews was not entitled to any payments and/or damages under the
Employment Agreement. The Arbitrators held a hearing on June 14 and 15, 2001
regarding the matter. On October 18, 2001, the Arbitrators ruled that the
22
Company and Clariti Wireless are jointly and severally liable to pay Mr.
McAndrews $290,500 plus reasonable attorney's fees and costs. On December 17,
2001, the Arbitrators awarded Mr. McAndrews $83,219 for attorney's fees and
costs, bringing the total award for Mr. McAndrews to $409,000, including
accrued interest. This amount is included as a general unsecured claim in the
Company's Chapter 11 bankruptcy proceedings.
On June 12, 2001, M&T Bank filed an action against the Company in the Court of
Common Pleas of Montgomery County, Pennsylvania. M&T Bank seeks to hold Clariti
responsible under the terms of a guaranty agreement pursuant to which Clariti
allegedly guaranteed certain obligations of its former subsidiary, Clariti
Telecom, Inc. M&T Bank seeks damages in the amount of $368,000
On October 17, 2001, Nine Penn Center Associates filed a complaint against the
Company in the Court of Common Pleas of Montgomery County, Pennsylvania. Nine
Penn Center Associates is the landlord and owner of real property known as the
Mellon Bank Center, 1735 Market Street, Philadelphia, PA 19103, a former
address of the Company's headquarters. Nine Penn Center Associates is seeking
damages associated with the remainder of a lease agreement. On April 2, 2002,
the Court entered a judgment by default in favor of Nine Penn Center Associates
in the amount of $1,203,493. This amount has been accrued and recorded in
general and administrative expenses. However, this amount is based on the
acceleration of the lease through 2006 and therefore is being disputed by the
Company through the Bankruptcy Court.
The Company is, from time to time, during the normal course of its business
operations, subject to various other litigation claims and legal disputes. The
Company expects none to have a material adverse impact on its operations;
however, no assurance can be given that an adverse determination of any claim
or dispute would not have an adverse impact on its operations during any given
period.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Events
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Officers Statement Pursuant to the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
None
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 19, 2002
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
(REGISTRANT)
By: /s/Abraham Carmel
--------------------
Abraham Carmel
Chief Executive Officer,
President and Acting Chief
Financial Officer
24
EXHIBIT 99.17
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
OFFICERS STATEMENT PURSUANT TO
REQUIREMENTS OF SARBANES-OXLEY ACT 0F 2002
Each of the undersigned, the Chief Executive Officer and the Chief Financial
Officer, respectively, of Clariti Telecommunications International, Ltd. ("the
Company"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18
U.S.C. Section 1350, hereby certifies as follows:
To my knowledge: (1) the periodic report of the Company accompanying this
statement fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d); and (2) the
information contained in the periodic report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 19, 2002 /s/ Abraham Carmel
---------------------------------------
Abraham Carmel, Chief Executive Officer
Date: November 19, 2002 /s/ Abraham Carmel
---------------------------------------
Abraham Carmel, Chief Financial Officer